LabCorp 2013 Annual Report Download - page 32

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LABORATORY CORPORATION OF AMERICA
Notes to Consolidated Financial Statements
(Dollars and shares in millions, except per share data)
1. Summary of Significant Accounting Policies
Basis of Financial Statement Presentation
Laboratory Corporation of America Holdings with its subsidiaries
(the “Company”) is the second largest independent clinical laboratory
company in the U.S. based on 2013 net revenues. Through a national
network of laboratories, the Company offers a broad range of
testing services used by the medical profession in core testing,
patient diagnosis, and in the monitoring and treatment of disease.
In addition, the Company has developed specialty and niche
operations based on certain types of specialized testing capabilities
and client requirements, such as oncology testing, HIV genotyping
and phenotyping, diagnostic genetics and clinical research trials.
Since its founding in 1971, the Company has grown into a
network of 44 primary laboratories and over 1,700 patient service
centers along with a network of branches and STAT laboratories.
With over 34,000 employees, the Company processes tests on
approximately 490,000 patient specimens daily and provides clinical
laboratory testing services to clients throughout the United States
and other countries including Mexico, the Bahamas, Belgium,
Germany, Italy, Spain, the United Kingdom, China, Singapore, Japan,
South Korea, and three provinces in Canada. The Company
operates within two reportable segments based on the way the
Company manages its business.
The consolidated financial statements include the accounts
of the Company and its majority-owned subsidiaries for which it
exercises control. Long-term investments in affiliated companies
in which the Company exercises significant influence, but which
it does not control, are accounted for using the equity method.
Investments in which the Company does not exercise significant
influence (generally, when the Company has an investment of less
than 20% and no representation on the investee’s board of directors)
are accounted for using the cost method. All significant inter-
company transactions and accounts have been eliminated. The
Company does not have any variable interest entities or special
purpose entities whose financial results are not included in the
consolidated financial statements.
The financial statements of the Company’s foreign subsidiaries
are measured using the local currency as the functional currency.
Assets and liabilities are translated at exchange rates as of the bal-
ance sheet date. Revenues and expenses are translated at average
monthly exchange rates prevailing during the year. Resulting
translation adjustments are included in “Accumulated other
comprehensive income.”
Revenue Recognition
Sales are recognized on the accrual basis at the time test results are
reported, which approximates when services are provided. Services
are provided to certain patients covered by various third-party payer
programs including various managed care organizations, as well as
the Medicare and Medicaid programs. Billings for services under
third-party payer programs are included in sales net of allowances
for contractual discounts and allowances for differences between
the amounts billed and estimated program payment amounts.
Adjustments to the estimated payment amounts based on final
settlement with the programs are recorded upon settlement as an
adjustment to revenue. In 2013, 2012 and 2011, approximately
16.0%, 17.6% and 19.0%, respectively, of the Company’s revenues
were derived directly from the Medicare and Medicaid programs.
The Company has capitated agreements with certain managed
care customers and recognizes related revenue based on a pre-
determined monthly contractual rate for each member of the
managed care plan regardless of the number or cost of services
provided by the Company. In 2013, 2012 and 2011, approximately
3.2%, 3.0% and 2.9%, respectively, of the Company’s revenues were
derived from such capitated agreements.
The Company’s net sales are comprised of the following:
Years Ended December 31,
Net sales 2013 2012 2011
Clinical diagnostics laboratory:
Core Testing $ 3,445.1 $ 3,246.6 $ 3,143.9
Genomic and Esoteric Testing 2,020.1 2,089.8 2,089.0
Other 343.1 335.0 309.4
Total $ 5,808.3 $ 5,671.4 $ 5,542.3
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of revenues and expenses during the reported periods. Significant
estimates include the allowances for doubtful accounts, deferred
tax assets, fair values and amortization lives for intangible assets,
and accruals for self-insurance reserves and pensions. The allowance
for doubtful accounts is determined based on historical collections
trends, the aging of accounts, current economic conditions and
regulatory changes. Actual results could differ from those estimates.